The more I think about the bail out of firms like Goldman Sachs I really get fired up. Goldman is / was a gambling firm, nothing more, nothing less. They did business with the biggest gamblers out there, hedge funds, private equity, off balance sheet firms of banks and individual investor / speculators.
We bailed them out. They were not a regulated bank / financial firm. The Treasury had no right to bail them out with taxpayer money, or Morgan Stanley or any other unregulated entity.
The fact that the Treasury and Fed rushed through applications to make these firms "regulated banks" infuriates me. This was a complete hijack of sensible regulations and laws in place to define what firm is a regulated entity that has to conform to routine inspections and a certain legal framework and those that can gamble at will with money from people who wish to be involved in their conduct.
As far as I am concerned, the folks in Washington who orchestrated the bail out of unregulated financial institutions and who are now making over a trillion dollars of taxpayer money available to unregulated industries to buy debt should all be indicted and tried for wrong doing.
I am very firm on this opinion. In addition, I read yesterday in the http://online.wsj.com/article/SB124139573742681835.html WSJ about the way banks are treating business lines of credit. It appears no only have hedge funds and unregulated (now regulated) gambling institutions have figured out how to make a killing on CDS products but now the banks are using the CDS market pricing of institutional debt as a guide on pricing that debt. From article:
Now, lenders are cutting the length of many commitments to less than a year. They are charging higher fees for the lines of credit, known as revolvers. And instead of promising an interest rate determined mainly by the company's credit rating, banks will now charge more if the cost of insuring the company's debt against default is higher.
I feel this is very dangerous. Although the traditional credit rating agencies completely failed to do their job correctly for the last 5+ years with respect to the secondary market for various types of debt and companies who engaged in selling various secondary products, to resort to making credit available and at what price based on what speculators are paying and or charging for credit default products is very dangerous and will lead to very distorted pricing and benefit money lenders and speculators at the cost to real companies that create real products and employ people in industries that ad real economic output to our GDP (unlike the financial products / debt "industry")
Randi Payton
rpayton@onwheelsinc.com
President Barack Obama may be doing a good job of repairing the nation’s economy but behind the scenes his strongest political base is eroding due to major setbacks in corporate diversity. African Americans reached into their pocketbooks to make unprecedented contributions to Mr. Obama’s presidential campaign last year. However, if the current trend of cutting diversity efforts continues, African Americans will not have the resources to financially support the president’s bid for a second term. When there’s the no work, there’s no money.
Thousands of African American small businesses, automotive dealers and suppliers, minority –owned media outlets and their employees are feeling the brunt of the recession. Businesses cannot get loans, corporations are laying off employees at an alarming rate and domestic automakers, the second largest employer of African Americans outside of the federal government, don’t see diversity as a priority during this economic crisis.
Minority car dealers and minority automotive suppliers who had the funds to support President Obama’s first run for the presidency will almost disappear because of the current economic crisis. Automakers have been corporate leaders in diversity for at least a generation. But diversity is not being considered in the restructuring plans of the domestic automotive industry.
Automakers that championed diversity and encouraged their ad agencies to support it, but did not require those same agencies to practice it, are now dropping diversity advertising and marketing altogether or making significant cuts. Corporations are too concerned with their survival to focus on diversity advertising and marketing which should be an essential part of restructuring. However, it has been looked at as affirmative action instead of a need to reach more than 30 percent of American consumers.
Minority dealers and suppliers who represented a huge financial support base for President Obama during his presidential campaign cannot get financing to operate their businesses and they have lost the support of larger companies that cannot get credit themselves. Not only has progress on this front ceased but all these businesses are closing at an alarming rate.
Small minority businesses experienced huge growth; their owners who often used equity in their homes to finance their start-ups can no longer do so and SBA and VA backed financing is frozen. The banks simply will not loan, although the Obama Administration has pumped money into them to free up the secondary finance markets. Banks either don’t have the cash or they are using the federal money to generate interest payments and to repay the government to escape federal oversight. But small minority-owned businesses have been left out of this equation.
African American employees, who were making inroads into upper management positions when diversity was a corporate priority, are now the first to be cut during tough times. Their input was never really valued; even those who have proven track records of success.
One 30-year senior executive at General Motors told me that this is the worse time that she has ever seen for diversity. Progress in that area is quietly being set-back. President Obama needs to appoint a diversity czar to protect the interests of minority consumers.
Other black politicians as well as President Obama should also be worried because they all need financially healthy voters to support their political campaigns. The ultra conservatives have yet another trick up their sleeve to destroy the economic base of minority consumers. They have one goal in mind – force the domestic automakers into bankruptcy and destroy the unions and the middle class. The current trend is having a devastating impact on African American middle class workers and it would make it difficult for all African American office seekers and incumbents, not just the president, to get future financial support from the black community.
Randi Payton is the CEO & President of On Wheels Media, which publishes African Americans On Wheels, Latinos On Wheels and the www.onwheelsinc.com web site. On Wheels will launch DECISIVE magazines and web hub summer of 2009, a consumer media to help consumer in multicultural market make decision on products and services. Get free digital copies of On Wheels magazines at www.onwheelsinc.com
Nouriel Roubini, an economics prof at NYU, has an article in today's Washington Post that's been floating around on the web for a little while already, arguing for quick nationalization of insolvent banks. The reason for urgency is that the situation continues to deteriorate.
How bad is the economic crisis? Perhaps an anecdote will provide some sense of the context...
In a recent interview, Representative Paul Kanjorski (D, PA) revealed that on September 18, $550 billion (you read that right) flowed out of U.S. money markets in 2 hours, stopped only when the Treasury shut down the system. Had they not stopped it, the entire world economic system would have collapsed. In Kanjorski's words, "We were having an electronic run on the banks." (He was told about this by Henry Paulson, btw.) Bear that in mind as debates continue over how to deal with this mess. An awful lot is at stake.
On far more trivial note, please be aware that I'm still having e-mail trouble, so if you send me an e-mail message, please be patient if you don't immediately get a response.
February 10, 2009 Financial Stability Plan Fact Sheet by Treasury Department & Geithner is below and my comments are below.
What Geithner stated at the G7 world finance meeting on 2/14/09: we outlined a broad framework for financial recovery and stability. This framework is designed to provide greater transparency to the financial system, to bring in new capital, new financing to restart the flow of credit to consumers and businesses, and create a new investment fund to finance and leverage private sector capital to facilitate the clean up of bank balance sheets. In the coming days we will announce a comprehensive plan to address the housing crisis.
As we act together to build a strong foundation for recovery, we need to begin the process of comprehensive reform of our financial system and the international financial system, so the world never again faces a crisis this severe. While this is a responsibility of national governments, our markets are global and therefore national efforts cannot be fully effective without stronger international cooperation to implement higher standards. In this regard, we will continue to support the important work underway in the Financial Stability Forum and the G20. We will work closely with our colleagues in the G7 and the G20 to build consensus on reforms that match the scope of the problems revealed by this crisis.
What he stated to us on February 10, 2009: Restarting our economy and job creation requires both jumpstarting economic demand for goods and services through our American Recovery and Reinvestment Act and simultaneously ensuring through our new Financial Stability Plan that businesses with good ideas have the credit to grow and expand, and working families can get the affordable loans they need to meet their economic needs and power an economic recovery.
To address the financial crisis, the Financial Stability Plan is designed to attack our credit crisis on all fronts with our full arsenal of financial tools and the resources commensurate to the depth of the problem. To be successful, we must address the uncertainty, troubled assets and capital constraints of our financial institutions as well as the frozen secondary markets that have been the source of around half of our lending for everything from small business loans to auto loans.
To protect taxpayers and ensure that every dollar is directed toward lending and economic revitalization, the Financial Stability Plan will institute a new era of accountability, transparency and conditions on the financial institutions receiving funds. To ensure that we are responding to this crisis as one government, Secretary Timothy Geithner -- working in collaboration and joined by Federal Reserve Chairman Ben Bernanke, FDIC Chair Sheila Bair, Office of Thrift Supervision Director John Reich and Comptroller of the Currency John Dugan – is bringing the full force and full range of financial tools available to cleaning up lingering problems in our banking system, opening up credit and beginning the process of financial recovery.
The plan summary: on the web: http://www.ustreas.gov/news/index2.html
1. a. Increased Transparency and Disclosure: Increased and enforce banking supervisors recognize the need not to adopt an overly conservative posture or take steps that could inappropriately constrain lending.
b. Coordinated, Accurate, and Realistic Assessment: All relevant financial regulators -- the Federal Reserve, FDIC, OCC, and OTS -- will work together in a coordinated way to bring more consistent, realistic and forward looking assessment of exposures on the balance sheet of financial institutions..
c. Forward Looking Assessment – Stress Test: A key component of the Capital Assistance Program is a forward looking comprehensive "stress test" that requires an assessment of whether major financial institutions have the capital necessary to continue lending and to absorb the potential losses that could result from a more severe decline in the economy than projected.
d. Requirement for $100 Billion-Plus Banks: All banking institutions with assets in excess of $100 billion will be required to participate in the coordinated supervisory review process and comprehensive stress test.
3. Capital Assistance Program: While banks will be encouraged to access private markets to raise any additional capital needed to establish this buffer, a financial institution that has undergone a comprehensive "stress test" will have access to a Treasury provided "capital buffer" to help absorb losses and serve as a bridge to receiving increased private capital. a preferred security investment from Treasury in convertible securities that they can convert into common equity
b. This convertible preferred security will carry a dividend to be specified later and a conversion price set at a modest discount from the prevailing level of the institution's stock price as of February 9, 2009.
c. Banking institutions with consolidated assets below $100 billion will also be eligible to obtain capital from the CAP after a supervisory review.
Financial Stability Trust: Any capital investments made by Treasury under the CAP will be placed in a separate entity – the Financial Stability Trust – set up to manage the government's investments in US financial institutions.
Public-Private Investment Fund: One aspect of a full arsenal approach is the need to provide greater means for financial institutions to cleanse their balance sheets of what are often referred to as "legacy" assets. Many proposals designed to achieve this are complicated both by their sole reliance on public purchasing and the difficulties in pricing assets. Working together in partnership with the FDIC and the Federal Reserve, the Treasury Department will initiate a Public-Private Investment Fund that takes a new approach.
Public-Private Capital: This new program will be designed with a public-private financing component, which could involve putting public or private capital side-by-side and using public financing to leverage private capital on an initial scale of up to $500 billion, with the potential to expand up to $1 trillion. Private Sector Pricing of Assets: Because the new program is designed to bring private sector equity contributions to make large-scale asset purchases, it not only minimizes public capital and maximizes private capital: it allows private sector buyers to determine the price for current troubled and previously illiquid assets
Consumer & Business Lending Initiative – Up to $1 Trillion: Addressing our credit crisis on all fronts means going beyond simply dealing with banks. Between 2006 and 2008, there was a net $1.2 trillion decline in securitized lending (outside of the GSEs) in these markets. That is why a core component of the Financial Stability Plan is:
A Bold Expansion Up to $1 Trillion: This joint initiative with the Federal Reserve builds off, broadens and expands the resources of the previously announced but not yet implemented Term Asset-Backed Securities Loan Facility (TALF). Treasury was to use $20 billion to leverage $200 billion of lending from the Federal Reserve. The Financial Stability Plan will dramatically increase the size by using $100 billion to leverage up to $1 trillion and kick start lending by focusing on new loans.
Protecting Taxpayer Resources by Limiting Purchases to Newly Packaged AAA Loans: Because these are the highest quality portion of any security -- the first ones to be paid -- we will be able to best protect against taxpayer losses and efficiently leverage taxpayer money to support a large flow of credit to these sectors.
Expand Reach – Including Commercial Real Estate: The Consumer & Business Lending Initiative will expand the initial reach of the Term Asset-Backed Securities Loan Facility to now include commercial mortgage-backed securities (CMBS). In addition, the Treasury will continue to consult with the Federal Reserve regarding possible further expansion of the TALF program to include other asset classes, such as non-Agency residential mortgage-backed securities (RMBS) and assets collateralized by corporate debt.
2. New Era of Transparency, Accountability, Monitoring and Conditions: A major and legitimate source of public frustration and even anger with the initial deployment of the first $350 billion of EESA funds was a lack of accountability or transparency as to whether assistance was being provided solely for the public interest and a stronger economy, rather than the private gain of shareholders, bondholders or executives. Going forward, the Financial Stability Plan will call for greater transparency, accountability and conditionality with tougher standards for firms receiving exceptional assistance. These will be the new standards going forward and are not retroactive. These stronger monitoring conditions were informed by recommendations made by formal oversight groups – the Congressional Oversight Panel, the Special Inspector General, and the Government Accountability Office -- as well as Congressional committees charged with oversight of the banking system.
Requiring Firms to Show How Assistance from Financial Stability Plan Will Expand Lending: The core of the new monitoring requirement is to require recipients of exceptional assistance or capital buffer assistance to show how every dollar of capital they receive is enabling them to preserve or generate new lending compared to what would have been possible without government capital assistance.
My Notes:
After listening to Mr. Simon Johnson, economist, on Bill Moyers this Sunday I have to admit he had motivated me to read Geithner’s Financial Stability Plan and to find out why the Market took a nose dive after the announcement of the plan. I better understand his point now. The market dominated by men lacks the keep ingredient men thrive on: Competition. The plan is definitely civil…it does not generate …what they call it…HEAT! Like Baseball there is reason the ball is at one baseball for so many minute before it ends up at the other end. {I don’t know what kind of ball player Geithner is but I know How President Obama is and he would get this point.} Men have to know the rules, see how to follow the rules then what the reward/goal for following the rules is. This is simple but true in business, finance, and economics. Note: These rules apply to women who want to participate as well.
Mr. Simon Johnson, economist, finds the plan needs a scaled up version of FDIC that require the bankers wanting and needing Government assistance should bring to the table a group of private investors and those have the most will receive the most. I have to agree with him. This would add some heat to the process something these well dressed captains of business can understand. I must pass this message to Mr. Geithner, the Obama Team, & Treasury for feedback on what they think. [Submitted to Whitehouse.gov on 2/15/2009]
BTW, Those who voted against the stimulus plan and don't like the Financial Stability Plan be aware that U do not have to take any funding from these plans. These groups can demonstrate their objections by leaving the monies in the Treasury for those who appreciate the Government assistance. Personally, I would be very please if they would do just that!
Let’s be honest. We didn’t really expect Congress to come up with a "bold" stimulus plan, did we? But do we agree that NO action will only aggravate our current crisis?
The GOP surprised us when it failed to respond more constructively to the bipartisan overture from Barack Obama. I personally witnessed the precedent-setting bipartisan dinner for his defeated opponent (my photo of the President-elect at the dinner honoring McCain, January 19) and noted the subsequent meetings with Congressional Republicans. And what did we get in the way of proposals from the loyal opposition? More of the dogma-driven, supply-side ideology that contributed to our current mess: tax cuts!
On the other hand, GOP critics have a point: the bill that passed the House and was embraced by Obama essentially is an accumulation of favorite Democratic spending proposals.
What is missing is CHANGE. The CHANGE Obama advocated in his campaign for the Presidency. The CHANGE that won him a resounding mandate to govern for four years. The CHANGE from policies that have worked to benefit few and imperil many. Where are the first steps toward affordable health care, a sustainable green economy and alternative energy? And why are we not moving boldly to address the systemic failures that underlie the current crisis in credit markets?
Obama asked for ideas. And Paul Krugman and Robert Reich, among others, obliged. But what these brilliant men offer is predictable: rationales for orthodox Keynesian solutions and concern about labor market distortions, respectively. More is needed, not just in additional spending, but in fresh ideas that advance the President's policy agenda. So, if suggestions are still welcomed, here is my two-cents worth. And please do keep the CHANGE.
Health Care
Obama has promised the nation affordable health care similar to his own Federal Employees Health Benefits Program (FEHBP), to be available to all by the end of his first term. There is no need to back off this goal. Health care is one of the largest drags on our economy and the stimulus bill provides a real opportunity to begin managing its cost. In addition to the bill’s provisions to help state governments fund Medicare and work projects, I suggest that the federal government reimburse all state and local governments for their employer's share of health care for the rest of this year. In exchange, recipients may not fire government workers and must commit to integrating their health care plans with the existing FEHBP starting in 2010. That provides additional and immediate financial assistance to state and local governments, while paving the way for the establishment of a Public Employees Health Benefits Program. By January 2010, the federal government’s negotiated health care program would expand its base and economies of scale. The next step will be to apply the system to businesses, and subsequently to capture the un- and under-insured.
Energy Independence
Most honest leaders recognize that in due course government will have to produce the substantial additional revenue to pay for the stimulus. But good luck finding a politician willing to propose increasing taxes of any kind. So let me suggest instead a hefty tariff on imported oil to fund the “green economy.” A tariff of 50 percent or more on the landed cost of all imported energy (probably with some form of accommodation for our NAFTA partners) can be justified because of national security as well as the external costs to our environment inherent in the use of fossil fuels. And such a levy would promote conservation, subsidize domestic production, and help to fund and protect our investments in alternative energy. This is a measure that should be welcomed by Republicans who advocate "drill, baby, drill” as well as environmentalists interested in promoting clean energy. The windfall earned by American producers could be invested domestically or taxed as profits. And while there may be a marginal increase of fuel cost at the pump, it will pale in comparison with the amounts we forked over to foreign potentates rather than our own Treasury these past few years, when oil was effectively 200% greater than its current price.
Reestablish a ‘Risk-Free’ Investment Benchmark
Explanations for our current credit crisis and financial market meltdown abound, including the Washington Post's excellent series. But absent from all the expert analyses is any mention of the Treasury Department's October 2001 decision to discontinue issuing 30-year Bonds. That decision, on the heels of 9/11 and the cusp of Bush's costly war on terror, both lowered mortgage yields and prompted increased sales of bundled mortgages marketed as alternative 'risk-free' instruments, which in turn fueled the housing bubble and distorted both government and corporate credit point spreads. Treasury Bond auctions have resumed, but a clear provision to finance America’s recovery through borrowing would repair yield spreads – both between short and long term sovereign debt and in relation to all other debt instruments. Transparent budget financing will help re-establish more realistic risk pricing and global confidence in the US economy. But the 30-year Bond will not regain its position as a benchmark for 'risk-free' long-term investment if Fed meddling in the market, as it proposes to do with its planned purchase of Treasuries from troubled banks. In fact, this central-bankers-gone-wild approach will only create a greater Treasury bubble that will seriously aggravate our problems. Once markets are allowed to properly price the cost and risk of our recovery without Fed manipulation, global confidence in the US economy has a chance to be recover.
So Pay the Bill, and Keep the CHANGE
Barack Obama attended his last inaugural event, the Staff Ball, at the DC Armory on January 21. But he arrived after a performance by the opening act, Arcade Fire. So here are some insightful lysircs from their “Intervention”:
You say it's money that we need As if we're only mouths to feed I know no matter what you say There are some debts you'll never pay
You say it's money that we need
As if we're only mouths to feed
I know no matter what you say
There are some debts you'll never pay
The message is relevant to the stimulus bill now before Congress.
We can act responsibly and cautiously if we:
Pay the Bill and Keep the CHANGE.
IMMEDIATE WARNING TO PRESIDENT ELECT BARACK OBAMA
President Elect Obama,
A release of a stimulus package as you have suggested must not take place for the next ten years.
Read full article and related articles: http://ameriborn.com/?p=421
Sources: http://firstread.msnbc.msn.com/archive/2008/11/21/1685124.aspx; http://www.msnbc.msn.com/id/27832013/
Sec. of Treasury: Tim Geithner (Interesting note: DIJA went up 500 points because of that.)
Sec. of Commerce: Bill Richardson
Sec. of State: (NOT FINAL) HRC (Huh?)
(Personal note: I'm not sure that Sec. Treas. & SoS are a good idea.)
EMK
I'd like to comment on the rumors about two potential Obama appointments: Lawrence Summers for Treasury Secretary and John Brennan for CIA Director. I feel both would be horrible appointments and represent an abandonment of the type of change theme on which our President-elect campaigned. And may I add that I can hardly believe my first blog post here is of the negative variety.
First off, I must say that I'm not one looking for a liberal counterstroke to Bush-Rove-Atwater style politics and appointments that have ruled the day for last 8, or 16, years. I do truly believe that we need to come together to solve our problems, both nationally and internationally. To do so, we need a new type of vision about ourselves, and our relationship to each other. More of a "world citizen" approach where we are all equal, and cooperate more than we compete, but that is a topic for another day.
Here, I'd just like to note that I didn't go into appoplexy when Joe Lieberman retained his place and chiar in the Senate. I'm no fan of Joe's, but overall, he has been a good Democrat on most issues. I wanted him out not for revenge, but for the simple fact he is a horrible chair of Homeland Security and Governmental Affairs. Homeland Security is bloated, wasteful, and has inadequate oversight, and Joe also failed to investigate Katrina, domestic spying, Gitmo, secret prisons, the AG's mess, or much of anything. Like Dingell in the House, he should have lost the Chair. But we do need every vote, and 60 would be sweet, so I don't have a problem with it.
Nor do I have a problem with Hillary as SoS. Maybe not what I'd have done, as I think domestic, not interantional issues, are her strongpoint, and I question her managerial skills. I think she's a fantastic legislator and lawyer, or potential judge. But, whatever, I still like her and think she could do a good job at State.
But Lawrence Summers and John Brennan? You have GOT to be kidding me! Is this some kind of sick joke?
Regarding the most aggregious choice, John Brennan at CIA. This is a man who adores Dick Cheney, favors "enhanced interrogations", and also was a backer of the pre-war "intelligence" case for going to war, which has been debunked. And George Tenet's former Chief of Staff.
First off, if his eye for good intelligence is so poor he can't figure out that going to war based on one questionable agent, "Curveball", wasn't a good idea he has no business running the CIA, or holding any high-ranking intelligence or security post.
Secondly, a torture supporter at CIA? Heading CIA? What a sick joke. How in the world can Obama claim to "make sure" we don't torture, then install a torture supporter as head of CIA? I call BS, and so should you.
Here's Andrew Sullivan's take (who can be over the top sometimes): http://andrewsullivan.theatlantic.com/the_daily_dish/2008/11/obama-picks-a-b.html
Indeed, Obama seems to be trending pro-war, pro-torture on virtually all the defense and intelligence posts. How is this change? It isn't.
Regarding Mr. Summers.
I am not one who puts much weight on the comments he supposedly made about women not being able to do math. I think they were taken largely out of context, and Mr. Summers has a long record of supporting women, and promoting them, while at Harvard.
What I do find troubling is the memo he wrote while at the World Bank urging industrialized nations to ship their pollution and waste to "underpolluted" areas in the third world for economic reasons, and shruggled off any moral or ethical arguments against it.
For me, this shows that Mr. Summers lacks some critical qualities in a leader: empathy and a moral and ethical center. It is a deal breaker for me, and should be for others as well. Not to mention the fact that he was also a proponent of deregulation (Clinton sytle).
Mr. Obama has said that a critical quality for Supreme Court justices is empathy, Mr. Summers' memo demonstrates he has none. Mr. Obama says we need to look out for Main Street not Wall Street, but wants to put someone at Treasury who literally wanted our shit to roll downhill onto the poor and downtrodden nations of the world. I guess its OK if its good for Main Street but polluts African, South American, or Central American streets.
Here is the memo, check it out for yourself:
http://www.counterpunch.org/summers.html
Again, I don't expect to be happy with every Obama decison or appointment. But what I do expect is that leaders show empathy and a moral and ethical center. Mr. Summers and Mr. Brennan, by virtue of their exporting pollution and pro-torture positions fail on this critical apsect. Furthermore, Mr. Brennan's naivete on pro-war intelligence shows he is ill-suited to run ANY intelligence agency.
Pleaase let Barack, and your Senator's know how you feel about these potentioal appointments.
Change We Can Bank On
AP photo / J. Scott Applewhite
Treasury Secretary Henry Paulson, center, addresses a gathering of corporate CEOs at an economic conference sponsored by The Wall Street Journal in Washington, D.C., on Monday. With him is Robert Thomson, left, editor in chief of Dow Jones & Co., and former Treasury Secretary Robert Rubin.
By Robert Scheer @ TruthDig.com
This is not change we can believe in. Not if Robert Rubin or his protégé, Lawrence Summers, get to call the shots on the economy in President-elect Barack Obama’s incoming administration. Both Clinton-era treasury secretaries deserve a great deal of the blame for the radical deregulation of the financial industry that has derailed the world economy. They both should, along with former Federal Reserve chief Alan Greenspan, perform rites of contrition and be kept at a safe distance from the leadership of our nation.
Yet Rubin and Summers are highly visible in the Obama transition team, with Summers widely touted as Obama’s pick for secretary of the treasury. New York Federal Reserve President Timothy Geithner, who also worked in the Treasury Department under Rubin and Summers, is the other leading candidate. But it was Summers who most vehemently pushed for congressional passage of that drastic deregulation measure, the Financial Services Modernization Act, which eliminated the New Deal barriers against mergers of commercial and investment banks as well as insurance companies and stockbrokers. Standing at his side as President Bill Clinton signed the legislation, Summers heralded it as “a major step forward to the 21st century”—and what a wonderful century it’s proving to be......
ENTIRE ARTICLE - http://www.truthdig.com/report/item/20081118_change_we_can_bank_on/
PS. Senator Russ Feingold for Chairman of the U.S. Senate Committee on Foreign Relations (replacing Biden)
Obama to tap Eric Holder for AG? http://www.blog.newsweek.com/blogs/poweringup/archive/2008/11/18/obama-s-attorney-general.aspx
Fed Bernanke & Sec.T. Paulson still support that bailout: http://www.msnbc.msn.com/id/27784105. Frankly, they should be removed from their posts.
Lieberman sticking around: http://www.msnbc.msn.com/id/27782936. Shouldn't he have been removed?
In Praise of a Rocky Transition
by Naomi Klein - Nov 13 2008
..Despite all of this potential lawlessness, the Democrats are either openly defending the administration or refusing to intervene....I suspect that the real reason the Democrats are so far failing to act has less to do with presidential protocol than with fear: fear that the stock market, which has the temperament of an overindulged 2-year-old, will throw one of its world-shaking tantrums...."The Street" would cheer a Summers appointment for exactly the same reason the rest of us should fear it: because traders will assume that Summers, champion of financial deregulation under Clinton, will offer a transition from Henry Paulson so smooth we will barely know it happened. Someone like FDIC chair Sheila Bair, on the other hand, would spark fear on the Street--for all the right reasons....There is no way to reconcile the public's vote for change with the market's foot-stomping for more of the same. Any and all moves to change course will be met with short-term market shocks....When transferring power from a functional, trustworthy regime, everyone favors a smooth transition. When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.
..Despite all of this potential lawlessness, the Democrats are either openly defending the administration or refusing to intervene..
..I suspect that the real reason the Democrats are so far failing to act has less to do with presidential protocol than with fear: fear that the stock market, which has the temperament of an overindulged 2-year-old, will throw one of its world-shaking tantrums..
.."The Street" would cheer a Summers appointment for exactly the same reason the rest of us should fear it: because traders will assume that Summers, champion of financial deregulation under Clinton, will offer a transition from Henry Paulson so smooth we will barely know it happened. Someone like FDIC chair Sheila Bair, on the other hand, would spark fear on the Street--for all the right reasons..
..There is no way to reconcile the public's vote for change with the market's foot-stomping for more of the same. Any and all moves to change course will be met with short-term market shocks..
..When transferring power from a functional, trustworthy regime, everyone favors a smooth transition. When exiting an era marked by criminality and bankrupt ideology, a little rockiness at the start would be a very good sign.
by Karl Denninger
11/13/2008
http://market-ticker.denninger.net/archives/657-Ok-Mr.-Obama,-Time-To-Choose.html
Are you really "Change We Can Believe In"?
Are you really "Yes We Can"?
If so, here are the acts you must undertake as soon as you are sworn in, and you should announce them tomorrow so the market will stop tanking due to the lies of Mr. Paulson and Bernanke:
If you want to stabilize our markets and financial system, you must undertake all six of the above acts, and you should announce your intention to do so now, so that the markets can anticipate that the "dark ages" of obfuscation, lying and theft will stop on January 20th.
...
I agree with this Bloomberg article, so far Obama is bringing on board many of the exact same people who either created the financial crisis or have been involved some kind of corporate fraud or another. This is NOT the change we want. There are plenty of good, innovative candidates for Treasury and other financial posts - Luis Zingales at Chicago GSB, Nassim Taleb, Nouriel Roubini, Janet Tavakoli, for example. Why are the people who foresaw and understand the financial crisis being ignored in favor of those who either created it, or failed to foresee it and still don't understand it??? C'mon Obama, we didn't work so hard the past 2yrs to get you elected for this, we expect better.
http://www.bloomberg.com/apps/news?pid=20601039&sid=aNCFKvAMUQ6w&refer=home
Commentary by Jonathan Weil
Nov. 11 (Bloomberg) -- It's hard to believe Barack Obama would even think of calling this change.
Take a good look at some of the 17 people our nation's president-elect chose last week for his Transition Economic Advisory Board. And then try saying with a straight face that these are the leaders who should be advising him on how to navigate through the worst financial crisis in modern history.
First, there's former Treasury Secretary Robert Rubin. Not only was he chairman of Citigroup Inc.'s executive committee when the bank pushedbogus analyst research, helped Enron Corp. cook its books, and got caught baking its own. He was a director from 2000 to 2006 at Ford Motor Co., which also committed accounting fouls and now is begging Uncle Sam for Citigroup- style bailout cash.
Two other Citigroup directors received spots on the Obama board: Xerox Corp. Chief Executive Officer Anne Mulcahy and Time Warner Inc. ChairmanRichard Parsons. Xerox and Time Warner got pinched years ago by the Securities and Exchange Commission for accounting frauds that occurred while Mulcahy and Parsons held lesser executive posts at their respective companies.
Mulcahy and Parsons also once were directors at Fannie Mae when that company was breaking accounting rules. So was another member of Obama's new economic board, former Commerce Secretary William Daley. He's now a member of the executive committee at JPMorgan Chase & Co., which, like Citigroup, is among the nine large banks that just got $125 billion of Treasury's bailout budget.
There's More
Obama's economic crew might as well be called the Bailout Bunch. Another slot went to former White House economic adviser Laura Tyson. She's been a director for about a decade at Morgan Stanley, which in 2004 got slapped for accounting violations by the SEC and a month ago got $10 billion from Treasury.
That's not all. There's Penny Pritzker, the Obama campaign's national finance chairwoman. She was on the board of the holding company for subprime lender Superior Bank FSB. The Chicago-area thrift, in which her family held a 50 percent stake, was seized by the Federal Deposit Insurance Corp. in 2001. The thrift's owners agreed to pay the government $460 million over 15 years to help cover the FDIC's losses.
Even some of the brighter lights on Obama's board, like Warren Buffettand former SEC Chairman William Donaldson, come with asterisks. Buffett was on the audit committee of Coca-Cola Co.'s board when the SEC found the soft-drink maker had misled investors about its earnings. Donaldson was on the audit committee from 1998 to 2001 at a provider of free e-mail services called Mail.com Inc. Just before he left the SEC, in 2005, the agency disciplined the company over accounting violations that had occurred on his watch.
Telling Stories
So, by my tally, almost half the people on Obama's economic advisory board have held fiduciary positions at companies that, to one degree or another, either fried their financial statements, helped send the world into an economic tailspin, or both. Do you think any of that came up in the vetting?
Let's say we give Buffett a pass -- smart move he made, skipping the group photo-op last week in Chicago. What about the rest of them? Donaldson, for one, was chairman when the SEC voted in 2004 to let the big Wall Street banks, including Lehman Brothers Holdings Inc. and Bear Stearns Cos., lever up their balance sheets like drunks. Talk about blowing it.
And whom did Obama tap for White House chief of staff? Rahm Emanuel, the Illinois congressman who was a director at Freddie Mac in 2000 and 2001 while it was committing accounting fraud.
Ideally, this job would go to someone who can't be easily fooled. Think about it: Of all the people Obama could have chosen as his chief of staff, couldn't he have found someone who wasn't once on the board of Freddie Mac?
Renewed Confidence
The president-elect needs some new advisers -- fast. We are in a crisis of confidence in American capitalism. These aren't the right people to re-instill its sense of honor.
Many of them should be getting subpoenas as material witnesses right about now, not places in Obama's inner circle. Did Obama learn nothing from the ill-fated choice of James Johnson, the former Fannie Mae boss, to lead his vice- presidential search committee?
Does he think people like Robert Rubin or Richard Parsons will offer any helpful advice on how to stop crooked bankers or sleep-walking directors from sinking our economy? Or that they won't mistake the nation's needs for their own corporate interests? Or that the people who helped get us into our long financial nightmare have any clue how to get us out?
Obama has created hope that our nation can stand for all that is good in the world again. It's not too late to change course.
Start by scrapping this board.
I just want to make sure I have this straight: Sen. McCain proposes that the Treasury use the first $350 billion of the bailout to buy up the mortgage-backed securities (MBS) that are clogging up the credit markets. These are the slapped together, asset-backed securities that no one wants to touch because they are made up of good and bad mortgages. However, no one knows how much of each are in the securities. The lack of transparency is part of the problem, but they are clogging the secondary markets; they can't be sold and money can't be raised.
He then wants to use another $300 billion to buy at FULL VALUE the troubled mortgages that have helped to make these MBS toxic. In essence, the Treausry buys the securities at a discounted rate; the Treasury will then buy the underlying mortgages at FULL VALUE. The bank gets to clear the MBS off its books and gets cash. The bank then gets FULL VALUE for the overpriced mortgage of the security just cleared off its books.
??????
Essentially, the banks get paid in both the primary and secondary market by the same "investor."
Perhaps erratic isn't the right word.
McCain named Meg Whitman as a possible Treasury secretary. Whitman is a bad choice and as the CEO of eBay she lead the company down the drain with a series of bad decisions. She made many bad purchases on behalf of her company, cashed out on over 2 billion in compensation. She also led to the massive layoffs of eBay employees, raised fees and along with Bill Cobb lost the Japanese market share, made a terrible initial investment in China and led to fraud, losses and rip-offs of her customers.
The Federal Reserve operates a Ponzi scheme. Congress can pay for federal expenses with funds collected from taxes, imposts, and duties, but congress is never satisfied with this amount. The desire to buy votes from special interest groups, and financially assist politically connected friends (or is this redundant?), compels congress-critters to spend more, and this is identified as deficit spending. To finance this deficit, the Federal Reserve will create on their accounting books a line of credit equal in the amount of the bills, bonds, or notes the congress will authorize; i.e., the Fed receives the interest-bearing obligation on the full faith and credit of the United States and in return checks written by government agencies will be honored by the banking system. The accumulated deficits are identified as the national debt... It must be observed
To make the scheme appear legitimate, the Fed sells a large percentage of the bills, bonds, and notes, with the help of the U.S. Treasury, to remove much of the currency generated by the scheme (multiplied by fractional reserves) from circulation. Japan and China hold debentures for approximately 25% of the total U.S. debt. How much of this debt holding has been required by financial and government policies to gain approval of trade status for the past 40 years is unknown. It should be apparent that if Japan and China attempt to sell the obligations to support their economy, it would precipitate a world wide tsunami. How much purchase of the US debt is required of various other nations to gain favorable trade status is unknown, but it ties all nations into a global economy. The recent invasion of Iraq is theorized by some sources as retaliation for an economic policy designed to remove the dollar as the international reserve currency.As many have written, the new creation of money by deficit spending is
Some sources suggest the Fed has never been audited. That is not totally accurate. My 360 page copy of the 1996 Annual Report to Congress by the Board of Governors obtained after several calls to D.C., contains considerable information on the financial status and revenue transfers of the banks, branches, and the system, including interest earned from holdings of national debt. It is audited and signed by Price Waterhouse, LLP, page 275. All federal government entities are audited by the GAO, are they not? It is also known that
No information is found that suggests an audit of any specie holdings, nor is there any information as to who owns controlling stock (Class A). Congressman McFadden went to his grave unsuccessful in his attempts to determine who owns the fed.When faced with litigation, the
How long will the Fed be able to continue the Ponzi scheme? A common measure of the solvency of a corporation is the ratio of profit to the cost of debt service. A company that makes 30 times what they must pay for interest on long term debt is much more stable than one with a ratio of 3. Every year the US debt service cost increases, and the increase is exponential. Interest on the national debt now consumes 20 to 25% of the taxes collected by the federal government. It is only a matter of time before taxes will not be able to service the national debt.
The Fed was pulling currency out of circulation in the late 1920’s and the stock market was the first to feel the impact with margin calls. Local banks were compelled to call notes that were normally rolled over from year to year to meet increased reserve requirements and the stock market was the most liquid. When the economy appeared to be stabilizing, the Fed repeatedly tightened the money supply to deepen the depression.
Today, the Fed is selling government debt at one to two percent. Is the government getting a bargain? Currency is available but demand is low. Major capital investments by businesses are being deferred as production facilities are being located overseasto escape oppressive taxation levied upon employees and operations, in addition to avoiding government regulations, restrictions and fines for variances. The price of a low interest rate for government debt is the destruction of the tax base. (In reality, congress does not care what interest rate is paid. Congress does not have to make a profit to stay in business---let the people pay whatever. However, interest earned by the Fed and financial institutes holding government debt is reduced.)
The economic rape of the public will be perpetuated as long as possible. Ever increasing deficits are necessary to pay the interest and make the economy look good. The increasing deficits will escalate the cost of debt service exponentially. Congress-critters will not complain of the system or threaten not to pay the interest---the Fed might not honor their pay checks. The Fed controls the testicles of congress.
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~40% of Americans own homes worth less than their mortgage, and that number will rise to about 55% through 2010 according several economic forecasts. $700Bn is a lot of money, but not quite enough, and could be used more effectively if it funded the source of the problem--house prices, and provided funding and liquidity to things that matter, like consumers and families that are Fk@d by the current crisis. Assuming the average American home is currently worth $250K (down 25% from purchase), and the original loan-to-value was 90% (or $281,250), then the average American homeowner has $31,250 of negative equity. Thus, if our government bought out the negative equity of every US homeowner (assume 30 million), it would cost $937.5Bn. Imagine if every American homeowner received $31,250 to pay down their negative equity and reduce the value of their mortgage payments?
Here is what it looks like:
--Assume everyone reduces the principal value of their loans by $31,250 with a nice check from the government solely to be used to pay down negative equity as determined by mortgage value (including second mortgages if relevant), less newly-appraised value of home.
--Assume everyone with negative equity re-finances into new, 30 Yr. fixed loans at 6.3%.
--New payments would be $1,547/month
--Assume average current payments of 1,834/Mo @8% rate for sub-prime
--Assume the government takes a pro-rata equity stake in the house in exchange for bailout funding, which amounts to 12.5% in this example.
This plan would save average American homeowners $287/month, or $103Bn a year for the 30M families, allow banks to write-off and fund the negative equity of their debt, set a clear price for the bailout, set a clear price for distressed homes, and IMMEDIATELY add liquidity back to the system and help consumers start consuming again--thus stimulating the economy. Thus, the true net cost to the government, and taxpayers would be:
$937.5Bn initial up-front funding of negative equity
Less: $103.3Bn of net annual homeowners savings thanks to reduced mortgage payments
Less: Government equity value of homes. Assuming homes increase in value just 5% over the next five years, and people pay the government back after they sell, the government could earn back about $381Bn.
Total Net Cost to government:: $453Bn.
Basic Mechanics:
--Approve true cost of total consumer bailout: About $937.5Bn
--Work with banks to contact every homeowner that is underwater on their home or currently/imminently in default.
--Apprraise new values of homes and document current value of mortgages
--Send out checks to fund negative equity in the homes with equity stake agreements, as well as re-finance agreements.
--Execute and enjoy ;)
Sounds a lot simplier, more effective and faster than starting with the top down approach of valuing the toxic securitized mortgages, sending money to banks that are not likely to lend it out anytime soon, and hoping for an economic recovery, all the while the consumers are still strapped with their underwater homes and payments they can barely afford.
Derivatives that were traded on Wall Street are worthless. They had value only because buyers gave them value, in the same way that buyers of Treasury notes give them value. Neither asset is backed by reserves in gold, but both assets are backed by investor confidence in continued economic growth, a real expansion of the economy that would generate wealth to support their worth.
Unfortunately, real growth did not take place; rather, artificial growth took its place. I define artificial growth to be a phantom economic expansion based on credit that had no realistic basis in repayment. That happened when consumers were over-extended, and still were buying homes, with no money down.
Well, as Shakespeare said in King Lear, "Nothing will come from nothing." So, with nothing supporting the phantom economic expansion, the market is now crashing, returning nothing to the consumer/investor. But reality is worse than simply having nothing; it is in debt, and there is not enough money in the market to service that debt.
When Paulson says he will issue bonds to give liquidity to the market, he is issuing a promise that the United States will have real economic expansion to pay for it, all $700 billion, on top of the nearly $10 trillion deficit that is already on the books. Who in the right mind will buy this promise? Not to worry, someone will, for if the United States goes down economically, so go the rest.
But, if he does not, what will become of the markets? They will suffer, and the economy will contract and economic misery that has already permeated throughout America and the world will worsen, for a contracting economy will keep on contracting, pushing the world over the precipice and into a deep and extended depression. That means no jobs, no money, no house, no health care and no meals on occasion.
What if Treasury issues $700 billion and it stops working a few months down the road? Politically speaking, Paulson does not care. It’s another administration. But everyone else on Main Street has to care. Therefore, I suggest again, as I have already, that Treasury spend a trillion, $500 billion on Wall Street for immediate liquidity, letting money flow from the top down, and $500 billion on Main Street for infrastructure and alternative energy, to create jobs and stimulate the economy from the bottom up.
